Summary of his comments:
1. Currently , Malaysia's KLSE is trading at historical high. Since 2009, KLCI rebounded by more than 800 points to over 1800 points now in the period of 5 years. There's been some false alarms, including the 13th General Election, but basically the trend is upward.
2. The Malaysian Index only doubled between 2009 and now, but many individual stock prices turned over several times.
3. In 2009, there were MANY severely undervalued stocks.
4. In 2013, prior to the General Election, many were not optimistic about the outcome of the election and therefore became bearish of the stock market. However, I was bullish about the stock market, and boldly predicted(during an event in Nanyang Auditorium) that after the GE, the stock market will still continue to be high.
5. The current bull market has been running for 5 years; therefore contrary views have now emerged amongst stock market veterans such as iCapital.biz's Tan Teng Boo and senior economist 白文春regarding the emergence of the bear market.
- Tan saw that the crash was coming two years ago, and had started selling huge amount of stocks held by iCAP (Bursa's only close-ended investment fund) and is now sitting on a huge pile of cash waiting for the market to fall so that he could sweep up undervalued stocks at a bargain. However, two years on, the stock market was still bullish, and therefore some opportunity costs had to be paid....
- 白文春 saw it differently. Because properties are too pricey now, he advocated that it's better for investors to invest their money in the stock market instead.
- Investors should think of ways to protect themselves in order not to be caught in a imminent bear market. It is still possible to overcome the stock market and achieve the purpose of making money later.
- Firstly, the investor must be "debt-free" from borrowings of the bank, especially margin traders. If there are borrowings from the bank, the investor ought to pare down his holdings, sell off some stocks and pay the debt off. Only hold on to the amount of stocks with your own money.
- Secondly, rule of the thumb in financing for stocks : Only borrow from the bank during the bear market season, where stocks are at their most significantly undervalued prices. Reason for doing this is that there is a high possibility where stock prices will recover in the future, and therefore makes a significant gain. At that time, paying off the debt is not possible. (Comment: I do think we should take this advise with care. Not everyone has the same risk appetite or like to borrow(and serve margin interest). Therefore, think before borrowing!)
- During bear markets, note that Dividend Yield(D/Y) is higher than bank's interest rate. Dividend income will be sufficient for interest repayment for margin financing. Investors will also enjoy capital gains from the rise of stock prices. (Comment: Not all stocks pay out dividends. Some companies may want to reserve their cash for business expansion or preservation during bear markets. Again, think twice about this advise). In 2009, when the share prices were extremely low, it was a good time for investors to borrow and buy shares. However, at the present time, it is unwise to do so because of the historical high trading prices ; risk has increased compared to its return, while the D/Y is too low and insufficient to pay the interest payments.
- Lesson learnt: Three weeks ago, a small correction happened while many investors held margins. If the investor has no debt, he can be calm and hold on to the stocks and suffer unnecessary loss.
- Thirdly, avoid purchasing stocks that are too illiquid or unpopular to avoid being caught out during a stock market reversal.
- During the bull market, when stocks are overvalued, or when the enterprise's fundamentals has turned negative, it is no longer worthwhile for our investments. However, if the stock counter is too illiquid, the investor may not be able to sell it off at all and therefore unable to turn stocks into cash. If your holding is large and the outstanding stocks in the market is huge, it is even harder to sell.
- Unpopular stocks due to their low liquidity do not attract investors. Therefore, these stocks' long-term value is severely undervalued and they tend to become the value investors' investment target. However, the problem with these stocks is that they tend not to have a market price, and therefore investors cannot benefit from it.
- Picking high-hanging fruits are riskier than picking low-hanging fruits. Under such circumstances, the investor should pay more attention to strategy.
- It is difficult to predict the ups and downs of a stock market. Therefore, the most reliable strategy to overcome the stock market is to be in the condition of winning first ( not being defeated by the enemy), and then wait for the enemy to be defeated.
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